Gold ETFs and the 28% Tax Trap: What GLD, IAU & SGOL Investors Don't Know

Gold ETFs look like regular stock trades in your brokerage account. The IRS sees them very differently.

The Tax Surprise Nobody Warns You About

Here's the scenario: You bought shares of GLD or IAU through Fidelity, Schwab, or Vanguard. It sits in your brokerage account next to your index funds. You sell at a profit after a year. Your broker sends you a 1099-B that looks identical to every other stock sale.

But when you (or your CPA) prepare your return correctly, the gain isn't taxed at 15% or 20%. It's taxed at up to 28%.

Most investors have no idea this is coming. Gold ETFs trade on stock exchanges, settle like stocks, and show up on the same brokerage statements as stocks. Nothing in the buying or selling experience hints that the IRS treats them fundamentally differently. The surprise hits at filing time — which, for many investors who held GLD through the gold surge from $2,000 to over $5,000 per ounce, is right now.

Why Gold ETFs Are Taxed as Collectibles

The legal basis is IRC §408(m)(2), which defines collectibles to include gold, silver, platinum, and palladium. The IRS treats physically-backed gold ETFs as direct ownership of the underlying metal, not as ownership of a corporation or standard security.

This classification was confirmed in IRS guidance and is consistent with how these funds are structured. GLD (SPDR Gold Shares), IAU (iShares Gold Trust), and SGOL (Aberdeen Standard Physical Gold Shares) all hold actual gold bars in vaults. When you own shares, you own a fractional interest in that physical gold. The IRS follows the substance of the arrangement, not the form.

The result: long-term gains on these ETFs are taxed under IRC §1(h)(4)–(5) at the collectibles rate — your marginal rate, capped at 28% — instead of the standard long-term capital gains rate capped at 20%.

For a complete explanation of how collectibles taxation works, including bracket stacking and the relationship between your marginal rate and the 28% cap, see our complete guide to how collectibles are taxed.

Which Gold ETFs Are Collectibles (and Which Aren't)

Not all gold-related ETFs get the 28% treatment. The distinction depends entirely on what the fund holds:

A general framework: if the fund holds physical metal, it's a collectible (28%). If it holds shares of companies that mine metal, it's a regular equity fund (20%). Gold futures ETFs have their own treatment under IRC §1256 — the 60/40 rule (60% long-term, 40% short-term regardless of holding period) — but these are uncommon for most retail investors.

How the 28% Rate Actually Works

The 28% is a cap, not a flat rate. Your gold ETF gain is stacked on top of your ordinary income and taxed at your marginal rate — but that rate can never exceed 28% for long-term collectibles gains.

In practice:

• If you're in the 12% bracket, you pay 12% on the gain
• If you're in the 22% bracket, you pay 22%
• If you're in the 24% bracket, you pay 24%
• If you're in the 32% bracket or above, you pay 28% (the cap kicks in)

This means the 28% rate only costs you more than regular capital gains if you're in a high bracket. For someone in the 12% bracket, the collectibles classification is actually irrelevant — you'd pay 12% either way (vs. 0% on regular LTCG). The pain point is for taxpayers in the 22%+ brackets, where regular stock gains would be taxed at 15%, but gold ETF gains are taxed at your bracket rate up to 28%.

If your gain is large enough to push you across bracket boundaries, it gets split — the portion in the lower bracket is taxed at the lower rate, and only the portion above is taxed at the higher rate (up to 28%). For a detailed walkthrough with examples, see our complete guide to collectibles taxation.

The Full Tax Stack: Federal + NIIT + State

The 28% cap is just the federal base. Two additional layers can push your total rate much higher.

Net Investment Income Tax (NIIT)

If your modified adjusted gross income (MAGI) exceeds $200,000 (single) or $250,000 (married filing jointly), a 3.8% surtax applies to the lesser of your net investment income or the amount by which your MAGI exceeds the threshold. This can push the maximum federal rate to 31.8%.

State capital gains tax

Most states tax capital gains as ordinary income. California adds up to 13.3%, New York up to 10.9%, New Jersey 10.75%. States with no income tax on capital gains include Florida, Texas, Nevada, Wyoming, Alaska, South Dakota, New Hampshire, and Tennessee. For a full state-by-state breakdown, see our state capital gains guide.

Example: Selling $50,000 of GLD at a profit

That's 41.1% of the gain going to taxes for a high-bracket California resident. Had this been a regular stock ETF like SPY, the federal rate would have been 20% instead of 28% — a difference of $2,400 on this single trade.

The 1099-B Trap: Why Your Broker Won't Save You

When you sell GLD, your broker sends you a Form 1099-B that looks exactly like a regular stock sale. The form lists proceeds, cost basis, and whether the gain is short-term or long-term. What it almost certainly does not say is that the gain should be taxed at the collectibles rate.

This creates two problems:

1. Tax software defaults to the wrong rate. When you import your 1099-B into TurboTax, H&R Block, or FreeTaxUSA, the software typically treats the sale as a standard long-term capital gain (0/15/20%). You have to manually flag it as a collectible to get the correct 28% rate. Many investors don't know to do this. Many CPAs miss it too.

2. You might underpay without realizing it. If your software applies 15% instead of 28%, your return is wrong. The IRS may not catch it immediately — especially if the 1099-B doesn't flag the collectibles treatment — but you're still liable for the difference plus interest if they do.

K-1 Complications: GLD and IAU

Here's another surprise most GLD and IAU investors don't see coming: you may owe tax even in years you don't sell any shares.

Both GLD and IAU are structured as grantor trusts, not as regulated investment companies (RICs) like most stock ETFs. The fund periodically sells small amounts of gold to cover its expense ratio (0.40% for GLD, 0.25% for IAU). Under grantor trust rules, these sales are treated as if you sold a proportional share of the gold yourself.

Each year, the fund's sponsor publishes a tax information statement (sometimes called a "K-1-like" document, though it's technically not a K-1) detailing:

• Your share of the gold sold to cover expenses
• The cost basis allocated to those sales
• The resulting gain or loss

The amounts are usually small — fractions of a cent per share — but they're taxable. And they're taxed at the 28% collectibles rate if you've held shares for more than one year. This also means your cost basis in remaining shares adjusts downward over time.

SGOL (Aberdeen Standard Physical Gold) has a similar structure. Check your fund's annual tax reporting documents — they're usually published on the sponsor's website by mid-February each year.

Tax-Smart Alternatives to Physically-Backed Gold ETFs

If the 28% rate is painful, there are legitimate alternatives that either reduce or eliminate the extra tax burden:

Gold mining ETFs (GDX, GDXJ, RING). These hold shares of gold mining companies, not physical gold. Long-term gains are taxed at the standard 0/15/20% rate. The trade-off: mining stocks don't track gold prices as closely and carry company-specific risk (management, costs, geopolitical exposure).

Hold gold ETFs in tax-advantaged accounts. GLD, IAU, or SGOL held in a traditional IRA, Roth IRA, or 401(k) grow tax-deferred or tax-free. The 28% collectibles rate only applies in taxable brokerage accounts. If you're planning to hold gold long-term, this is arguably the most impactful tax decision you can make.

Tax-loss harvesting between gold vehicles. If you have a losing position in one gold ETF, you can sell it to harvest the loss and immediately buy a different gold ETF (e.g., sell IAU at a loss, buy SGOL). The wash sale rule applies to "substantially identical" securities, but GLD, IAU, and SGOL track different indices and have different structures, so most tax professionals consider them non-identical for wash-sale purposes.

Spread sales across tax years. If you have a large position, selling in increments can keep you in a lower bracket or avoid triggering NIIT. This is especially effective if a single large sale would push your MAGI above the $200K/$250K NIIT threshold.

Physical Gold vs. Gold ETFs: Tax Comparison

If you're choosing between Costco gold bars and GLD, the tax rates are identical — both are 28% collectibles. But there are practical differences in reporting and complexity:

The biggest practical difference: gold ETFs are easier to buy, sell, and hold in tax-advantaged accounts. Physical gold avoids K-1 complexity and annual taxable events but requires you to track your own cost basis, has no automatic IRS reporting, and may be subject to state sales tax at the time of purchase.

How to Report Gold ETF Sales on Your Tax Return

When you sell GLD, IAU, or SGOL at a gain, you report it on:

1. Form 8949, Part II (long-term capital gains) — list each sale with date acquired, date sold, proceeds, cost basis, and gain/loss. If your broker provided a 1099-B, the information flows from there.
2. Schedule D (Form 1040), line 12 — this is specifically for 28-percent rate gain. Summarize your collectibles gains here to ensure the correct rate applies.

In most tax software, you'll need to take an extra step to flag the gain as a collectible. In TurboTax, look for the option to categorize the type of asset — select "collectible" or "28% rate gain." In H&R Block, it's under the asset type when entering investment sales. If you skip this step, the software will apply the standard 15%/20% rate and your return will be incorrect.

Don't forget the K-1-like adjustments from expense-ratio gold sales — these need to be reported separately even if the amounts are small. For a full walkthrough with screenshots and worked examples, see our reporting guide.